I am a senior editor at Forbes, covering legal affairs, corporate finance, macroeconomics and the occasional sailing story. I was the Southwest Bureau manager for Forbes in Houston from 1999 to 2003, when I returned home to Connecticut for a Knight fellowship at Yale Law School. Before that I worked for Bloomberg Business News in Houston and the late, great Dallas Times Herald and Houston Post. While I am a Chartered Financial Analyst and have a year of law school under my belt, most of what I know about financial journalism, I learned in Texas.

A federal judge in New York blocked Apple from holding a Feb. 27 shareholder vote over issuing so-called “blank check” preferred stock, handing a victory to billionaire hedge-fund operator David Einhorn.

Einhorn’s Greenlight Capital has amassed a $585 million stake in Apple and wants Apple to issue tens of billions of dollars in 4% “perpetual preferred” stock as a device for transferring some of Apple’s $137 billion cash hoard to shareholders. Apple management doesn’t like the idea, and in a normal universe activist shareholders would be on management’s side. Blank-check preferred is usually used as a takeover defense and hedge-fund managers typically want to take this weapon away.

“In terms of raw power, most big shareholders would want management’s hands tied,” said Lawrence Hamermesh, an expert on corporate governance at Widener Law in Delaware. “Having a fund of authorized shares on hand would be a good way for management to establish an anti-takeover defense.”

This isn’t a normal universe, however, and Apple apparently doesn’t want to even entertain the possibility of using Einhorn’s mechanism — he’s dubbed it iPref — for getting rid of its excess cash. The company claims it came up with the idea of requiring a shareholder vote on preferred stock last May, before Einhorn began his crusade, but Einhorn raised the issue in a conference call that same month.

In a 16-page ruling issued this afternoon, U.S. District Judge Richard Sullivan enjoined Apple from holding a shareholder vote on the matter because Apple had improperly combined it with another proposal to institute staggered voting for directors, another measure most activist shareholders would support. By combining the two matters into a single proposal on the proxy, Sullivan said, Apple presented investors with an intolerable choice.

“By Apple’s admission, Proposal No. 2 forces shareholders who oppose the `blank check’ amendment to either vote in support of the entire package – registering a false vote in favor of the preferred stock change – or vote down the entire proposal,” Sullivan said, a violation of the Securities and Exchange Commission’s “unbundling rules.”

Sullivan declined to decide whether Einhorn’s proposal was a good idea for shareholders or even if it has a chance of happening. “The harm is that Greenlight …will be forced to cast an unrepresentative and illegal vote,” he wrote.

Greenlight, in a statement, said “we look forward to Apple’s evaluation of our iPref idea and we encourage fellow shareholders to urge Apple to unlock the significant value residing on its balance sheet.”

Hamermesh said it was unprecedented for corporate managers to ask shareholders to take away a financing tool from them — especially one that is usually used to prevent an unwanted takeover that could cost them their jobs.

“The conventional wisdom is, the more flexibility you’ve got the better,” he said. “The whole theory of blank-check preferred stock is the board has the flexibility to deal with evolving markets rapidly. The reality is now if the board wants to issue stock, they need to call a shareholder meeting.”

Apple’s chairman, Tim Cook, said in a recent conference call the measure was pro-shareholder — which, of course, it normally is. “Frankly, I find it bizarre that we would find ourselves being sued for doing something that’s good for shareholders,” he said. “I think it’s a silly sideshow, honestly, and my preference would be that everyone on both sides of the issue would take the money they’re spending on this and donate it to a worthy cause.”

Einhorn is pushing iPref as a superior alternative to a massive stock buyback or boosting Apple’s dividend because, he says, investors in technology stocks don’t place a higher value on those stocks if they boost their dividend. Shareholders would get the 4% perpetual preferred and could keep it or sell it to investors interested in the cash flow.

Sullivan summed up the spat this way:

The dimensions of this dispute extend well beyond the SEC rules invoked in the Complaints: billionaire hedge fund manager Einhorn is at odds with Apple over the future of the company’s capital allocation strategy.

Normally that’s a matter for directors to decide, and if they get it wrong, investors buy a different stock. But this stock comes with an ownership claim on $137 billion in cash, and Einhorn wants to get his hands on that money before Apple managers do something stupid with it. With today’s ruling, Judge Sullivan is telling Apple management they need to give shareholders the chance to decide whether or not the board needs to keep this particular tool at the ready.

Einhorn wasn’t the only plaintiff in today’s decision. The other one didn’t fare so well. Investor Brian Gralnick wanted to block Apple’s “say-on-pay” vote because, he argued, the company’s 16-page disclosure on the measure was incomplete. Class-action lawyers have been pushing this type of action lately, threatening to block proxy votes but deciding the issue isn’t so important when companies agree to settle by paying them a fee. No payday for Gralnick’s lawyers Barrack Rodos and Bacine this time, though: The judge rejected their claim. Gralnick will be devastated, no doubt.

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